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Pakistan has secured a $7 billion medium-term financing deal with the IMF, providing relief as the government works to address escalating public debts and sluggish economic growth.
The IMF announced on Friday that a staff-level agreement had been reached with Prime Minister Shehbaz Sharif’s government for a 37-month financing program under an extended fund facility.
The agreement, Pakistan’s 24th bailout with the IMF, is now pending approval from the IMF’s executive board.
The program aims to build upon the macroeconomic stability achieved over the past year by strengthening public finances, reducing inflation, bolstering external reserves, and promoting private sector-led growth.
As part of the deal, Pakistan has agreed to phase out incentives for special economic zones and expand the tax net to include more of the agricultural sector.
Pakistan faced a severe economic crisis, with inflation peaking at 38%, before receiving a $3 billion rescue package from the IMF last year. The country’s debt burden consumed a significant portion of government revenue in interest payments.
Inflation has since decreased to 12.6% and central bank reserves have risen above $9 billion. The economy, which contracted last year, has now returned to growth.
To meet the IMF’s conditions, the government has implemented unpopular reforms, including tax hikes and increased energy tariffs.
The IMF praised Pakistan’s efforts to boost government revenue in the latest budget and emphasized the need for sustained policy efforts.
Khurram Husain, a commentator in Karachi, believes the deal will help stabilize the economy but warns that the government must remain committed to reforms.
“The possibility of the government reversing course on reforms is real and should not be underestimated,” he said.
“The conditionality is now stricter, and the authorities must maintain their policy efforts for an extended period,” noted Krisjanis Krustins, a director at Fitch Ratings.